Lagarde Warns of Inflation Risks Amid Euro Area Energy Price Surge

European Central Bank (ECB) President Christine Lagarde warned of inflation risks in the euro area due to higher energy prices. Speaking at a hearing of the European Parliament's Committee on Economic and Monetary Affairs, Lagarde stated that while there are no signs of energy costs becoming embedded in the broader economy, the outlook remains uncertain.

The ECB raised its three key interest rates by 25 basis points earlier this month, according to Lagarde. She emphasized that the central bank does not react to energy prices themselves but rather to the risk that higher energy costs could become embedded in inflation.

Euro area headline inflation rose to 3.2 percent in August from 2.9 percent in July, while energy inflation climbed to 14.3 percent from 10.3 percent. Lagarde noted that the inflation outlook for 2027 and 2028 is higher than projected a few months ago, mainly due to higher energy prices.